Australian investment managers are looking to embrace more cost-effective trading technologies as the market downturn intensifies, according to institutional equities trader Liquidnet chief executive Seth Merrin.
"In a bull market, inefficiencies can seem a small price to pay, but in a market downturn, costs borne through dysfunction become far less tolerable," Merrin said.
"If your fund is going up by 20 per cent a year and you lose a little bit in transaction costs, that is okay, but if you're losing 30 per cent or if you're only up 8 per cent, then every little bit counts."
Institutional investors in Australia had, until recently, been forced to rely on traditional methods to find liquidity and execute block trades, he said.
"However, there has been a shift all over the world to take the responsibility for trades in-house. This gives buy-side traders greater access to liquidity and the need to outsource a trader has declined," he said.
"Super funds are also starting to ask their managers about their use of new technologies."
As a result of these trends, Liquidnet Australia has achieved strong traction with Australian fund managers looking to execute block trades without moving the market.
To date, Liquidnet Australia has built a natural liquidity pool of almost $2 billion in Australian equities and its average trade size since January 2009 is $1.23 million.
The company began trading operations in Australia in early 2008 and has 68 Australian members who can trade wholesale-sized blocks of stock within the institutional-only platform.
"The days of wholesale investors being forced to find liquidity in retail-oriented markets via phone, email, Bloomberg, faxes, telexes and other archaic processes are drawing to an end," Liquidnet Australia co-head Stephen Zilioli said.
Liquidnet was launched in 2001 and is headquartered in New York. It facilitates institutional equities trading for asset management firms worldwide.
